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Airlines Prepare for Takeoff

Mar 25, 2013 | 10:16 AM EDT

You can really see the power of the deal when you look at particular airports. The combined company will control 50% of the traffic at Phoenix; Dallas/Fort Worth; Philadelphia; Charlotte, N.C.; and Miami. Meanwhile, the company will have 38% share at Chicago's O'Hare airport and about 21% at Los Angeles. They'll be the No. 1 player in the middle of the country, and No. 3 on the West Coast.

I think the deal should create more than $1 billion in cost savings and new revenue by 2015 -- a number that's likely conservative, based on what's happened in previous airline mergers.

Now, at the moment the stock is stalled because of pending Justice Department deliberations, and I think that's an opportunity.

Why do I think this stock could be so huge? Because we have seen it before, even at U.S. Airways, as a Deutsche Bank analyst has pointed out in a great piece of recent research.

Back in 2005, U.S. Airways merged with
America West in a deal that was very similar to this current pending transaction. You had a smaller airline, America West, pursuing a larger operator, U.S. Airways, that was operating under Chapter 11 bankruptcy protection -- as AMR is doing now. When the deal was formally announced, America West popped 7%. But, for the next month, during the Justice Department's 30-day waiting period, the stock languished. Once the deal was consummated, America West surged 54%, and a year later it had soared 200%.

I think history can repeat itself with U.S. Airways.

Now, in previous years, there would be cutthroat competition from young upstart carriers. But the opportunities for entry are now in short supply; it's almost impossible to get new airplanes that are fuel-efficient; and the only real discount carrier is
Spirit Airways(SAVE - Get Report). When I recently spoke Spirit CEO Ben Baldanza, he made it clear that the last thing he wants to do is to compete with these majors. He wants to be everywhere but where they are, which is why his stock is so terrific -- and I think it can also be bought.

The airlines are back, and they are able to make a ton of money. I would buy any of them, but I think that U.S. Airways and Spirit are the best and that United Continental is a close No. 2.